Yesterday,$NVIDIA (NVDA.US)$The government announced a 10-to-1 stock split plan.

According to reports, the adjustment will be carried out when the market opens on June 10 (Monday), and Nvidia's shareholders will receive an additional 9 common shares after closing on June 7 (Friday).

In terms of impact, analysts believe this may attract more interest from retail investors while paving the way for them to be included in the Dow.

Increase stock liquidity

Analysts believe that for Nvidia, which is already the third largest in the US stock market capitalization, the stock split may stimulate more interest among individual or retail investors.

The stock spin-off itself will not change the valuation of the stock, but market analysts say that the reduction in the value of each share has attracted individual investors. Compared with institutional investors with strong financial resources, individual investors tend to trade on a smaller scale due to limited capital.

Marco Iachini, senior vice president of Vanda Research, said, “Stock splits may be the biggest catalyst for continuing to attract retail flows.”

Judging from previous data, companies that announce stock splits often outperform the market. According to Bank of America's February analysis, the stock price of companies that announced the division will rise by an average of 25.4% over the next 12 months.

The last time, Nvidia's stock split announcement was issued on May 26, 2021. The split was officially implemented on July 20, 2021, and four shares were split in one share.

After announcing the split, Nvidia's stock price doubled within half a year and then fell, but it still increased by 21.55% in a year.

However, there were also cases where stock prices fell after the announcement of a stock split. After the stock split in 2022, Amazon and Google's stock prices continued to drop sharply throughout the year, as soaring interest rates weighed on the stock market during that year.

Sam Stovall, chief investment strategist at CFRA, said that investors often respond positively to spin-offs; it is more of a psychological phenomenon than any fundamental phenomenon.

“People would rather buy 16 shares at $20 per share than 4 shares at $80 per share, even though the two are the same; this is human nature.”

Furthermore, stock split announcements often coincide with recent strong financial performance and may indicate that the company believes more is about to happen.

Sam Stovall said, “It sent two messages: one is that they want smaller retail investors to participate in the rise, and the other is that the company itself is confident in its profit forecast to maintain higher prices.”

Inclusion in the Dow is in sight

Additionally, the stock split could make Nvidia more manageable and more likely to be included in the Dow.

Currently, the Dow consists of 30 constituent stocks, and Nvidia's current stock price is about twice that of its current highest-priced constituent stock.

If calculated at Thursday's closing price, the Nvidia split would drop its share price to around $104. This would make it the 21st most expensive constituent stock, second only to MSD, and higher than Disney.

In 2022, after Amazon carried out a stock price split, similar speculations about inclusion in the Dow Index also appeared. Earlier this year, Amazon was included in the Dow.

Art Hogan, chief market strategist at B. Riley Wealth, said, “Nvidia certainly met all the requirements to eventually become a component of the Dow: a strong reputation, a history of continuous growth, investor interest, and its industry representation in the wider market. The stock price of $100 would make it easier to calculate the original stock index when it was included.”

Notably, after announcing the earnings report, Wall Street's target share price for Nvidia rose by about $150 to $1,250 per share, and there is still room for more than 20% increase compared to the overnight closing price of $1037.99.

Among them, Cantor Fitzgerald's analyst C J Muse reiterated Nvidia's rating as an “increase in holdings” and raised the target share price from $1,200 to $1,400, the highest on Wall Street.

Editor/Jeffrey